Maybank bearish on Aztech’s outlook, lowers TP to 45 cents

In the 1QFY2025 ended March 31, Aztech reported revenue of $42 million and earnings of $12.5 million, a fall of 67% y-o-y and 91% y-o-y respectively.

Seets believes that earnings uplift will only come in the 2HFY2025, as its new automated production line in Malaysia, which is on track to be commissioned, starts running with five new customers from the consumer, health-tech and industrial segments.

Meanwhile, tariffs will reduce US consumer demand and orders from its key customer should remain weak. "Even with the ramp-up of its five new customers, it will not be able to replace orders lost from its key customer in the short term," says Seet.

Aztech has won over investors thus far for its generous dividend as it returns excess cash to shareholders.

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For FY2024, it is paying an ordinary dividend of 8 cents per share, plus a special dividend of 7 cents amounting to $311.3 million, which translates to a payout ratio of 164%.

Seet warns that despite the strong cash generation capabilities, Aztech is unlikely to sustain dividends at this level because of the tariffs, and might reduce the payout.

"Previously, we expected the high dividends to be attractive despite the risk," he says.

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"But with the tariffs causing a potentially fundamental change along with the downside risks we mentioned above, we now believe investors are better off not accumulating more while waiting for the tariff situation to stabilise," he adds.

With this, Seet has cut his FY2025 and FY2026 earnings forecasts by 43.1% and 43% respectively.

Upside factors for the stock noted by Seet include a better-than-expected order momentum of existing products in the current Internet of Things (IoT) upcycle, new customer wins and finally, better-than-expected margins from operating leverage.

Conversely, downsides include commoditisation of consumer IoT products that lead to pricing erosion, a worsening in the components shortage situation and lastly, inventory correction due to over-exuberance of supply chain in anticipating end-consumer demand.

As at 11.51 am, shares in Aztech Global are trading flat at 51.5 cents.